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Can physical stores turn ModCloth around?

In his first six months as CEO of the struggling apparel retailer, Matt Kaness opened Los Angeles and San Francisco pop-up shops and expanded ModCloth’s private-label lines. Investors are taking note.

Vintage apparel retailer ModCloth Inc. is looking to pop-up stores to help turn around its fortunes.

Last year was rough one for ModCloth, No. 198 in the Internet Retailer 2015 Top 500 Guide. The vintage-tinged apparel e-retailer endured two rounds of layoffs to attempt to turn a profit. Meanwhile, the previously fast-growing merchant’s revenue—which jumped from $15.6 million in 2009 to an Internet Retailer-estimated $148 million in 2013—was flat year over year. Then, in January, ModCloth co-founder and CEO Eric Koger resigned.

Into the chief executive role steppedMatthew Kaness, who had been chief strategy officer at Urban Outfitters Inc. (No. 49) since May 2007. Kaness says he saw ModCloth as a brand with a lot of potential for growth and he quickly set to expand the retailer’s reach via two big initiatives: testing shoppers’ responses to physical stores and broadening and diversifying its private-label assortment.

Using an infusion of cash from a $15 million Series C funding round, ModCloth opened up a three-day pop-up “fit shop” in the lobby of its Los Angeles office. The idea is similar to Bonobos’ guide shops in that consumers could reserve a time to stop into the shop to try on clothes, have employees take their measurements, as well as buy some merchandise like home decor and vintage apparel pieces. The response was “overwhelming” he says, noting that after receiving roughly 5,000 sign-ups it had to cap reservations.

“The model works for us,” Kaness says. “It enables us to get at least twice as many items into a fit shop because we don’t have to have every item in every size in stock.”

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Following the successful Los Angeles fit shop, ModCloth recently opened a San Franciscopop-up fit shop that will be open until Aug. 17. The idea is to test and incubate the concept, Kaness says, as the retailer aims to open permanent fit shops in the future. ModCloth will evaluate the store based on metrics both related to sales and customer satisfaction. “There are both hard and soft metrics that we’ll be looking at,” he says. “It’s both an art and a science.”

The retailer has also launched its own custom collection, which shoppers can buy at the San Francisco fit shop. While the retailer has always produced its own products, Kaness says it will dramatically increase the scale, including rolling out monthly deliveries.

“By having a proper branded apparel line we can better speak to the fashion community,” he says. Moreover, the effort may open the door to a wholesale business in which it sells to other retailers.

While ModCloth struggled last year, Kaness says the retailer’s new direction is helping drive growth. And after laying off a reported 100 employees last year, the retailer is hiring. It now has 350 staff, which is about 100 fewer than the 450 it employed at its peak a few years ago, but significantly more than it had at the start of the year.